Apple near saturation point for iPod, iTunes use by teens

The results of Piper Jaffray's 17th bi-annual teen survey are in, showing Apple to have broadened its lead in the areas of iPod consumption and iTunes usage -- both of which are nearing their saturation point -- as the company moves to translate these successes to its iPhone business.

"We believe that the teen demographic is a critical component of long-term growth in the digital music and mobile markets, and Apple is taking its leading position in music and moving aggressively into the mobile market," analyst Gene Munster wrote in a summary of his firm's findings.

Now in its eighth year, the bi-annual Teen Survey sees representatives for Piper Jaffray visit several high schools around the country and poll students about their interest and buying patterns in portable media players, online music, and, more recently, the iPhone. This year, 600 students with an average age of 16.3 years old were surveyed, 54 percent of which were male and 46 percent female.

iPods

Overall, 92 percent of students said they currently own a digital media player, up from 87 percent a year ago. Of these students, a resounding 86 percent reported owning an Apple-branded iPod, an increase of 2 percent from the same survey conducted in the fall of last year. Just 4 percent of students admitted to owning a Microsoft Zune.

However, when asked about their interest in buying a new digital media player in the next 12 months, only 19 percent said they planned to do so, representing a "dramatic" decline from 28 percent a year ago, and suggesting the market is near saturated. For Apple, the good news is that 100% of those respondents who said they plan to make a new purchase in the next 12 months indicated that their new player would be an iPod.

"Apple is dominant in the market, and the lead appears to be growing as the market nears saturation," Munster said, adding that this will likely drive Apple to turn its attention to secondary iPods like the new shuffle and iPods with more features and higher prices like the iPod touch. "Apple's dominance in the PMP market remains largely unchecked, and it is clear to us that Apple has captured the 'cool factor' among high school students across America."

Meanwhile, the percent of teens downloading music remains relatively high at 82 percent, a slight uptick from the 16th bi-annual Teen Survey conducted six months ago. Unfortunately for the record labels, more than half (60 percent) are still relying on illegal peer-to-peer file sharing networks to acquire their tunes. And despite the success of easy-to-use services like iTunes, this figure has fallen only 4 percent over the last two years.

That said, 97 percent of students who do purchase their music online through legal outlets say their digital shop of choice is the iTunes Store, up from 93 percent six months ago. Real Network's Rhapsody service was a most distant second, catering to just 2 percent of the students Piper Jarray surveyed. Napster was the only other service that registered in the poll, with a measly 1 percent of students confirming their use of the service, down from a high of 8 percent in the fall 2005 survey.

"As early as Fall-07, iTunes enjoyed market share of around 90 percent, which dipped to ~80 percent in the year following, due primarily to several new music services debuting with significant marketing pushes (Yahoo! Music, Rhapsody, eMusic, Amazon MP3, etc.)," Munster explained. "However, we believe, and our survey supports, that iTunes' share has since bounced back into the mid-90s as the appeal of these services has lost momentum."

Digital download service usage amongst teens | Source: Piper Jaffray.

iPhone

As far as iPhones and the teen demographic, Piper Jaffray's 16th bi-annual survey last fall found that 8 percent of teens owned an iPhone with an additional 22 percent saying they planned to buy one of the touch screen handsets over the next 6 months. In the most recent survey, the number of teen iPhone owners remained flat, though purchase intentions declined slightly to 16 percent.

"We believe AT&T rate plans are adversely causing the discrepancy in teen's interest in the phone, and actual market share gains; as much as teens want the phone, parents may be reluctant to add expensive monthly data plans to their teen's phone bill," Munster wrote. "We expect Apple to address this issue in the coming months, with a family of iPhone models including a high end model with current plan pricing and possibly a low-end model with fewer features and lower-cost monthly data plans."

iPhone buying intentions amongst teens | Source: Piper Jaffray.

The Piper Jaffray analyst, who maintains a Buy rating and $180 price target on shares of Apple, said this much-anticipated but unconfirmed model would be ideal for catering to more price sensitive geographies like China or price-sensitive demographics like teens.

Comments

If I was asked wether I'm planning to buy an iPod in the next 12 months I'd probably say no too, however as soon as Apple comes out with a new snarky iPod I would most definitely change my mind. When it comes to devices like the iPod people's plan-to-purchase is usually a week to a month not 12!! 12 months is more for real estate.

Well iTunes new pricing will probably have adverse sales for the teen market especailly, lets face it they tend to be the ones who want the latest music as it comes out, with the record lables recent price hike p2p or other cheaper alternatives will seem tempting.

This article and the study it's based on can be made irrelevant by merely adding the two words that *should* have appeared at the end of the article title (but didn't)

This should read: "Apple near saturation point for iPod, iTunes use by teens in America."

This is just going to get a lot of people riled up about "market saturation" that doesn't exist if you take of the red white and blue blinders. When will Americans learn that there is a world outside their borders?

I wouldn't be surprised if some teens in the sample falsely claimed to have an iPod. Some may be stuck with something cheaper and/or a gift from a confused relative, but don't want to admit it. iPod is the only name with status.

I'm wondering how all those "cool" teenagers grow older and decide that "coolness" doesn't matter and end up with "uncool" cheap Microsoft PCs. Maybe if Apple could just build a netbook-type of computer with a somewhat reasonable price to target those teens. Apple has a huge amount of appeal to teenagers, yet such a small amount of appeal to older computer users. Maybe buying mp3 players can't be translated to buying computers due to the large price jump of one device to the other. Too bad Apple can't sustain those teenager's interest through the college years.

This article and the study it's based on can be made irrelevant by merely adding the two words that *should* have appeared at the end of the article title (but didn't)

This should read: "Apple near saturation point for iPod, iTunes use by teens in America."

This is just going to get a lot of people riled up about "market saturation" that doesn't exist if you take of the red white and blue blinders. When will Americans learn that there is a world outside their borders?

Maybe when other people stop lumping us together as though we're a single person. Your comment shows you as no different.

Also, the story reported that the study was within the country, not worldwide.

Too bad Apple can't sustain those teenager's interest through the college years.

Well, they're sustaining one here (and I'm paying for most of the computer(s). They also hung onto my uncle since college, and who's now outfitted his whole business w/Mac, and Grandpa is much better off with his iMac since PC problems would probably kill him!

1. iPod Touch has huge potential both here in the US and in foreign markets. However, Apple need to add some features like hi end camera with mini zoom auto focus lens of good quality and CCD instead of the CMOS... and may be LED flash. The casual camera and video recording market is huge.

Another important feature would be a built-in mic. Free WiFi networks are very common here in the US in stores, universities, plus at home. Plus the same trend has started in Europe with free WiFi in parks, schools, universities, etc... they are even faster than here. With a VoIP plans it is a huge market. Apple could even tie in with Skype.

iPhone - It is quite onerous to have to sign up with ATT for the voice and data plan at such hi rates. Then have to pay extra for SMS even though it is just broad band app... so I would be paying twice.

QCOM and others make chip sets that allow multi band use over GSM, EDGE, CDMA, EVDO, WCDMA, etc and the variants. The BOM would not increase much. I know that Apple chained itself into a corner with ATT in the US... but there is a big wide world.

The main limitations with both product lines are those that Apple placed due to marketing constraints and limiting features. Not the first time they have done that.

There's no such thing as saturation when it comes to electronics and teenagers. Besides the obvious new models coming out all the time that they will lust over, they also lose or break such items at an alarming rate. There will always be ample reasons for them to "need" a new one long before they or their parents intended to make the purchase.

Correct me if I'm wrong, but doesn't it seem like every year or so someone is claiming that Apple has reached a "saturation point" with iPods. And then they just keep selling more of them.

Just because they have such a huge market share doesn't mean they won't keep selling new ones. iPods wear out, become obsolete, less cool, whatever. As long as Apple comes out with a new model - people will buy em.

As far as iPhones and the teen demographic, Piper Jaffray's 16th bi-annual survey last fall found that 8 percent of teens owned an iPhone with an additional 22 percent saying they planned to buy one of the touch screen handsets over the next 6 months.

Very, very few teens plan on buying an iPhone. Most will get one courtesy of their parents, as noted in the next paragraph...

Quote:

"We believe AT&T rate plans are adversely causing the discrepancy in teen's interest in the phone, and actual market share gains; as much as teens want the phone, parents may be reluctant to add expensive monthly data plans to their teen's phone bill,"